U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are expected to open higher on Monday after Reuters reported that OPEC, Russia and allies agreed on Saturday to extend record oil production cuts until the end of July, prolonging a deal that has helped crude prices double in the past two months by withdrawing almost 10% of global supplies from the market.
Besides extending the production cuts, OPEC+ also demanded better compliance from countries such as Nigeria and Iraq, which exceeded production quotas in May and June. They have agreed to compensate the group with extra cuts in July to September.
OPEC+ had initially agreed in April that it would cut supply by 9.7 million barrels per day (bpd) during May-June to prop up prices that collapsed due to the coronavirus crisis. Those cuts were due to taper to 7.7 million bpd from July to December.
Reactions Supportive for Higher Prices
“Demand is returning as big oil-consuming economies emerge from pandemic lockdown. But we are not out of the woods yet and challenges ahead remain,” Saudi Energy Minister Prince Abdulaziz bin Salman told the video conference of OPEC+ ministers.
“Prices can be expected to be strong from Monday, keeping their $40 plus levels,” said Bjornar Tonhaugen from Rystad Energy.
Russia to Cut 2020 Oil Output to 510-520 Million Tonnes: Energy Minister
Russia will cuts its crude oil production to 510-520 million tonnes in 2020 from around 561 million tonnes in 2019, Energy Minister Alexander Novak said on Saturday.
Novak, speaking shortly after OPEC, Russia and other agreed to extend record oil production cuts until the end of July, said the United States had cut its oil output by 1.9 million barrels per day.
Russia will fully comply with the deal this month, Novak told reporters in Moscow.
Gasoline Rises as U.S. Oil Producers Shut Wells Ahead of Cristobal
Energy companies on Friday evacuated 10% of production platforms and shut nearly 30% of offshore oil output, pushing gasoline prices higher, as Tropical Storm Cristobal entered the U.S. Gulf of Mexico.
Operators evacuated 65 offshore facilities on Friday and moved seven drill rigs out of the storm’s path, according to offshore regulator Bureau of Safety and Environmental Enforcement.
Well shut-ins took out 544,814 barrels per day of oil and 601 million cubic feet of natural gas production, BSEE said.
Spot Gulf Coast gasoline rose a half a penny on Friday as buyers acquired contracts in case the storm disrupts the market, traders said.
U.S. WTI and Brent crude oil are expected to get an early boost at the start of the week from the new OPEC+ production cuts extension. At some point, however, traders are going to start looking for signs of increasing demand. It’s easy to project prices based on expected production, but under current conditions, demand expectations are still a guess.
Tropical Storm Cristobal is already driving up gasoline prices and could push prices even higher. It all depends on where it hits the U.S. and how much damage to production facilities it causes if any. This will also determine the length of any extended shutdowns.
Cristobal is forecast to strike central Louisiana on Sunday after passing through U.S. offshore oil production areas. U.S. Gulf of Mexico waters account for about 15% of total U.S. crude production.
Last week, the U.S. Energy Information Administration (EIA) reported alarmingly high gasoline and distillate inventories. Shutting down gasoline and distillate facilities may actually help alleviate the oversupply condition, but it may not show up in the government report for over a week. Nonetheless, speculators may start to price in the news as early as Monday.
For a look at all of today’s economic events, check out our economic calendar.
This article was originally posted on FX Empire
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